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Agrium Beats on Earnings, Profit Skids

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Agrium Inc.'s profit for third-quarter 2013 dropped 41% year over year to $76 million or 52 cents per share from $129 million or 80 cents per share a year ago.

The results were affected by lower sales prices for urea, phosphate and potash and production outages across Agrium’s Redwater and Carseland nitrogen facilities. Moreover, uncertain fertilizer market conditions coupled with late growing season in North America that caused growers to delay crop nutrient purchases also contributed to the lower results.

Excluding one-time items other than stock-based payments, earnings of 61 cents per share beat the Zacks Consensus Estimate of 59 cents. Adjusted earnings exclude write-down on Agrium’s Hanfeng Evergreen Inc. investment and loss on hedge positions.

Agrium, which is among the prominent fertilizer companies along with Mosaic (MOS - Free Report) and Potash Corp. , logged revenues $2,869 million in the reported quarter, a roughly 1% year over year rise. Gain in the core retail franchise was offset by declines across wholesale and advanced technologies businesses. Sales missed the Zacks Consensus Estimate of $2,944 million.

Segment Highlights

Revenues from the Retail segment rose 15% year over year to $2.1 billion in the reported quarter due to a more regular seasonal crop input demand and higher sales from acquired retail businesses. Gross profit rose 17% year over year to $511 million on higher crop protection sales volume. The company witnessed higher sales from crop nutrient (up 3%), crop protection (up 26%) and seed (up 23%) in the quarter.

The Wholesale segment's sales dropped 24% to $752 million, hurt by lower realized sales prices for urea, potash and phosphate and outages at the company’s nitrogen facilities. Gross profit tumbled 59% year over year to $490 million due to lower pricing and decline in urea and phosphate sales volume as a result of plant outages.

Nitrogen and phosphate sales volume fell 22% and 26%, respectively, in the quarter. Domestic and international potash sales volumes surged 55% and 95%, respectively.

Revenues from the Advanced Technologies segment fell 14% to $108 million due to a decline in Environmentally Smart Nitrogen (ESN) volumes and lower pricing resulting from a weak urea market. Gross profit fell 57% year over year to $12 million.

Financial Position

Agrium exited the quarter with cash and cash equivalent of $255 million, down roughly 86% year over year. Long-term debt increased 92% year over year to $3 billion.


Moving ahead, lost production due to nitrogen plant outages is expected to impact sales volumes in the fourth quarter and reduce earnings for the quarter by 20 cents per share. Agrium expects earnings (excluding items) for the fourth quarter in the band of 80 cents to $1.25 per share.

Agrium sees strong demand for crop protection products in the fourth quarter on higher use of alternative active ingredients to glyphosate to counter increased weed resistance as well as increased use of fungicides.

Global potash market fundamentals are expected to remain challenging in the fourth quarter as a result of higher inventories and expected decline in Brazilian potash imports. Outlook for domestic potash demand is favorable for the quarter.

The potash market was hit by lower pricing and cautious buyer behavior in the third quarter due to the exit of world's largest potash maker Uralkali Group from one of the biggest potash cartels – the Belarus Potash Company (BPC) – and delay in Chinese supply deals.

On the phosphate front, global market conditions are expected to remain challenging in the fourth quarter partly due to the uncertain demand environment in India (a major phosphate import market). Phosphate import in India is expected to be hindered by delayed government subsidy payments and currency devaluation. Weak phosphate pricing also remains a concern.

Agrium currently carries a Zacks Rank #4 (Sell).

Another fertilizer company worth considering is The Scotts Miracle-Gro Company (SMG - Free Report) carrying a Zacks Rank #1 (Strong Buy).

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